Brazil’s economic and political rollercoaster

The latest polls put Workers Party leader Lula de Silva ahead in the two-horse race with incumbent right-wing President Jair Bolsonaro in today’s final round of the presidential election in Brazil.  If Lula wins, it will be a dramatic comeback for the former president after having been jailed for alleged corruption under the previous right-wing Temer regime; and then finally released and allowed to run again.  A Lula victory will mean that the Workers Party has regained the presidency after losing it when last WP leader Dilma Rousseff was impeached by a right-wing Congress in a ‘soft coup’ in 2016.  

The victory of ‘Tropical Trump’ Bolsonaro in 2018 was achieved mainly because of the disillusionment by sections of the working class with the Workers Party and the successful media campaign claiming that the WP was corrupt.  After the collapse of commodity prices in resources and agriculture in 2014, the economy went into recession.  The blame for this and corruption was laid at the door of the Workers Party.  But the experience of the COVID slump under Bolsonaro, when over 750,000 Brazilians died, has been so searing that, apart from his base among evangelical Christians and petty-bourgeois business people, it seems enough Brazilians will have turned away from him and returned to Lula, despite his past record, in hopes for better. 

Whoever wins, what now for Brazil’s economy? The economy has been slowly recovering from the COVID slump, based on rising commodity prices over the last year.  But Brazil’s long-term economic record, especially since the Great Recession, is one of slowing growth in GDP and productivity, rising private and public debt and above all, of extreme inequality in wealth and incomes.  

The economic roller coaster ride of the last decade is reflected by Brazil’s ranking among the world’s largest economies. Between 2010 and 2014, Brazil ranked seventh. In 2020, it slipped to 12th place. And in 2021 it dropped to 13th, according to Austin Rating. The trend growth rate has been falling.

Brazil: real GDP growth rate (annual %)

And Brazil has nearly the highest measure of income inequality in the world.

Former President Lula put it more dramatically: “In Brazil, 33 million people don’t have enough to eat,” he wrote on Twitter. “We managed in the past to get Brazil off of the world map of hunger. But hunger is back.”

Can Lula turn that round?  Well, if the past record of Lula is anything go by, then the prospects are mixed.  There is an excellent analysis of the economic performance of previous WP administrations by Brazilian Marxist economist Adalmir Marquetti and colleagues. This is how they sum up the impact of previous PT administrations. “The PT governments combined elements of developmentalism and neoliberalism in a contradictory construction, organizing a large political coalition of workers and capitalists that allowed expanding the real wage and reducing poverty and inequality while maintaining the gains of productive and financing capitals. The decline of profitability after the 2008 crisis broke the class coalition constructed during Lula’s administration. The Dilma Rousseff government adopted a series of fiscal stimuli for private capital accumulation with meager economic growth. After her reelection, the government implemented an austerity program that resulted in negative growth rates. With the deepening economic crisis and without political support, Rousseff was removed from power.”

Marquetti et al argue that the decline of profitability after the 2008 crisis played a key role in breaking the political coalition organized under Lula’s leadership, opening the possibilities for the soft coup of 2016.  That’s because investment and GDP growth rates were strongly associated with the profit rate in Brazil between 2000 and 2016.

Between 2003 and 2007, the profit rate increased despite the decline of the profit share because of an increase in capacity utilization and in the potential productivity of capital. Between 2007 and 2015, the profit rate declined because of an increase in the wage share and a drop in the potential productivity of capital. In 2010, the last year of Lula’s government, the profit rate was still higher than in the early 2000s.  However, the long-term path of the profit rate started to decline after 2010 at the end of the commodity price boom globally.  “The simultaneous decline in the profit rate and financial profitability was the beginning of the end of the class coalition constructed by Lula’s government.” 

The Rousseff government turned to neoliberal policies in attempting to overcome the decline of growth associated with falling profit rates in Brazilian capital.  Rousseff sought a rapprochement with the sectors of the bourgeoisie, contrary to her promise during the election campaign. The first fiscal measures, announced in January 2015, restricted workers’ access to unemployment insurance and changed the rules for some social security benefits. There was a reduction of fiscal spending; federal government investment declined 32 percent in 2015. 

The government capitulated to the view of Brazilian big business, enshrined in its newsletter of July 2016 (Institute of Industrial Development Research, a think tank linked to big Brazilian industry, “No Profits, No Investments” (IEDI, 2016).  The adopted neoliberal economic policy increased unemployment and reduced the real wage. But this capitulation did not save Rousseff from her impeachment by Congress and the institution of a right -wing government.

This is the danger ahead for a new Lula administration.  It will not have a majority in Congress and will face a vicious media campaign.  And it seems that Bolsonaro has cemented a coalition of the right based on religious and crazed petty bourgeois layers, and an antagonistic upper middle class particularly in the big cities of the south; with Lula relying on a somewhat disillusioned working class.

The economic recovery of the last year has also bolstered support for the Bolsonaro coalition as official unemployment has fallen to its lowest level in nearly seven years (although it is still above levels before the Great Recession of 2008-9).

Official unemployment rate (%)

Inflation is also falling but still well above pre-pandemic levels.

CPI inflation yoy %

The Brazilian economy expanded 3.2% year-on-year in the second quarter of 2022, picking up from the 1.7% advance in the previous three-month period and surpassing market forecasts of a 2.8% rise.  But this modest recovery is unlikely to last into 2023 as the world economy heads into a new recession that Brazil cannot escape. 

It is often reported that Brazil’s public sector runs the largest debt to GDP among all emerging economies. But more important, private sector debt (as % of GDP) is now at a record high.

Private sector debt to GDP (%)

With global interest rates rising fast, this is bound to weigh heavily on Brazilian companies and their ability to expand investment profitably.

The IMF forecasts just 1% real GDP growth for Brazil next year.  At the same time, more than half of Brazil’s population remain below a monthly income per head of R$560.  To cut this level of poverty to under 25% would require productivity four times as fast as the current rate. And there is no prospect of that under capitalism in Brazil. 

That’s because the profitability of Brazilian capital is low and continues to stay low. The profitability of Brazil’s dominant capitalist sector had been in secular decline, imposing continual downward pressure on investment and growth – to quote the Brazilian industry association above: ‘no profits, no investment’.

Source: Penn World Tables, author

As Marquetti et al have shown, the profitability of Brazil’s capitalist sector is key to investment and production growth.  Brazilian capitalism will be stuck in a low growth, low investment future with continuing political and economic paralysis.  And that is even without a new global recession coming over the horizon.

11 thoughts on “Brazil’s economic and political rollercoaster

  1. If the polls are correct, then it is expected for Lula to win with something between 50.1%-52.0% of the votes. However, Bolsonaro still has an ace in his sleeve: unconditional support of a class conscious bourgeoisie, who will try to suppress vote for the workers who work on Sundays (the overwhelming majority of which would vote for Lula were they allowed to) and the police force, which is trying to impede freedom of movement in the states and regions Lula has the most votes.

    According to studies, Lula may have lost up to 11 million votes thanks to those two voting suppression measures in the first round. If Bolsonaro is successful in this enterprise, he may win, even comfortably.

    As for Brazil itself, the diagnosis is very clear: in 2012, its GDP was USD 2.4 trn (the greatest in Brazilian History); in circa 2021, it was USD 1.8 trn – a 25% fall in output alone.

    When societies collapse, the State (Laws) tend to collapse first, according to the Marxist Theory of State. The culture, traditions and costumes tend to collapse last, well after the collapse of the State’s superstructure. A given state of the development of the productive forces in a given historically specific mode of production must give birth to its correspondent culture and traditions: in this case, a society in fast decline must quickly develop its correspondent culture/ideology/customs/tradition.

    Brazil being essentially the Christian version of Saudi Arabia, it is not surprising that such a sudden and sharp economic fall resulted in the rise of Fascist-like hegemony. Surprise would be if a Bolsonaro didn’t rise in Brazil, not if it did.

    The case of Bolsonaro’s rise is also a canary in the coalmine case to the so-called Western Civilization (American Empire; “The West”): it is unimaginable for his rise to happen if Trump hadn’t risen two years before. This wave of “right-wing populism” in the West is ultimate evidence fascism and all of its variants are a variant of liberalism, therefore a feature exclusive to capitalism, which dismantles the theory of Totalitarianism and its post-Cold War version, the theory of Authoritarianism.

    1. Alexander Davidson, who does the excellent Red Star Radio podcast, argues that fascist movements have been historically characterized by an imperialist aspect, and explains why even Franco’s Spain would be excluded on that basis. I think his arguments are consistent with the sort of careful Marxist analysis that characterizes this blog. He is active on Twitter from Manchester UK.

      1. That’s the main reason Bolsonaro was defeatable in Brazil: the lack of the imperialist content in Third World neofascism.

        Without the escape valve of territorial expansion, fascism cannot dislocate the domestic contradictions of the nation-state it governs.

        However, Bolsonaro’s neofascism is definitely a form of fascism, even though a Third World version of it, in my opinion, mainly because of these factors:

        1) With the help of the proliferation of American-style evangelical churches in Brazil, a kind of international fascist movement was made possible, thanks to a mix of eschatological ideology (Israel as the land of the Armageddon, where all the Christian nations will ultimately fight, with nukes, thus bringing the end of Humanity, i.e. the Rapture) without an immediate need for a nation not named USA to expand. In this sense, the role of the non-American neofascists would be to aid the Chosen People (i.e. the Americans) to reach the ultimate goal of the Rapture;

        2) Bolsonaro did seriously consider invading Venezuela militarily during the first months of his government, during the apex of the Guaidó Affair. The invasion didn’t come close to happen both because Brazil would lose such war and because the USA decided to try to invade Venezuela through the easier Colombian border (the burnt truck over the bridge fiasco). The benefits of a Brazilian neofascist invasion of socialist Venezuela (and its vast oil resources) and an equally neofascist USA (then still ruled by Trump) are too obvious to even write here;

        3) in Brazil’s case, the narrative of the internal enemy has enough material base to prosper under a fascist ideology. First, because Brazil, historically, used the system of “internal colonization” after slavery was abolished in 1888 (that is, the Southeast prospered with cheap and abundant workforce from the Northeast for decades – Lula himself is one of such migrants, what in Brazil they call “retirantes”). Second, because Brazil’s Cold War era doctrine was not updated and is still enforced. Brazil’s vastness of both territory and population gives it plenty of food for “internal imperialist expansion”, against the “internal enemy”.

      2. “fascist movement have been historically characterized by an imperialist aspect…” forces an unwelcome intrusion, my apologies. If Alexander Davidson is correctly characterized as claiming Franco Spain wasn’t fascist, then this is the kind of Marxist analysis that makes Marxism look bad. The role of Moroccan troops in the civil war was not an expression of anti-imperialism where the Moroccan people avenged themselves on the imperialists of Spain! The deep roots of the Spanish fascism lie in the defeat of the Spanish empire, el disastre, in the Spanish-American war.

        Fascism is a response to imperialist defeat more than anything else, not a cunning strategy by the nationalist bourgeoisie to get rich off of empire. Empires is usually a net cost, not a net benefit The hazards of war ensure it is usually a losing proposition even for the bourgeoisie. It was only ever the loser stigma that made fascism so relatively unpopular with the bourgeoisie. Imperialism is always reactionary at core, despite the best efforts of some to find a human face for empire.

        Does Davidson consider Israel fascist, it being currently the only seemingly “successful” imperialist/colonialist project extant?

  2. I carefully follow various views of the Brazilian economy, Keynesian Marxists and others. Attributing the fall of the PT government to the fall in profitability in 2008, to say the least, is exotic and unprecedented, since the overthrow of the Dilma government was in 2016, that is, after eight years.
    I was also suspicious of the following paragraph:
    The government capitulated to the view of Brazilian big business, enshrined in its newsletter of July 2016 (Institute of Industrial Development Research, a think tank linked to big Brazilian industry, “No Profits, No Investments” (IEDI, 2016). The adopted neoliberal But this capitulation did not save Rousseff from her impeachment by Congress and the institution of a right-wing government.
    There is a time inversion that takes away some of the credibility of Adalmir Marquetti’s work, in 2016, Dilma Rousseff was already in the process of impeachment, and citing the opinion of a liberal think tank linked to big business that has strong opposition to the Workers’ Party is at least one academic deviation.
    It is also interesting that the investment data that are placed in the work gives me the impression that they were taken from the work “No Profits, No Investments” which are calculated by removing the investments of the two largest companies in Brazil, Petrobras and Vale do Rio Doce .

    1. I don’t think Marquetti and Roberts are saying that the IEDI newletter triggered the governmental neoliberal response (which started much earlier, with the fateful choice of Joaquim Levy as Minister for Economy in the very beginning of Rousseff’s second term – a choice that was so blatant a capitulation that the right-wing weekly, VEJA, celebrated it in its cover). I think they’re saying that the view of capital was enshrined in that newsletter, which is a reference for anyone interested in reading about it, even though the view certainly already existed prior to its publication, being as it is the Marxist explanation for the instability inherent to capitalism. So the timing wasn’t a problem.

      As for leaving Petrobras and Vale out of his calculations, I’d have to read the publication to know Marquetti’s reasoning, but I suspect in at least the case of Petrobras, the removal is warranted because profitability of oil/energy has a dynamic of its own, as exemplified by Paul Cockshott’s videos on the matter. Being outliers, Petrobras and Vale couldn’t account for the dynamic of profitability in the rest of the private sector, so removing them might be important to expose the trends. In fact, being government-controlled, Petrobras could falsify/disturb profitability analysis since it operates as a SOE, not a private company.

  3. There are a number of inaccuracies in the text, for example, the change in the unemployment calculation, which was changed at the end of 2019, starting to be considered an employee who received 1 day of pay (formal or informal) in the last month, for example, all who were hired to deliver election propaganda for a day are considered employees.
    Another problem is the demise of the end of the Dilma government, already in 2015, the so-called agenda-bombs began, projects that further destabilized finances.
    As for the removal of Petrobras and Vale from the calculation, it is not justified because at the time they were the largest investors in the country, it would be like removing technology companies from the North American calculation.
    I know that the text should not be taken as political, but the impact of Lava Jato cannot be ignored.

  4. On the new fascism – apparently called “Christian nationalism” in the USA – there’s a new article that has just came out:

    “White Christian nationalists on US midterm election mission” –

    In it, there’s a lot of links to peer-reviewed articles and books. They all corroborate with my historical bet that the USA is entering its “Byzantine phase”, characterized by a diminishing importance of its eastern provinces (i.e. Europe) and a growing importance of its western provinces (Japan, South Korea, Australia), and a corresponding rising importance of its West Coast (California, Washington and Oregon) in detriment to its East Coast (the Thirteen Colonies). It will be a more land-based Empire, where the Christian fanatic population from the Deep South and the Midwest will serve as the demographic reserve for the future American Army, an even more deindustrialized Empire, and, most importantly, a Christian Theocratic Empire as opposed to the Globalist Capitalist Empire it was during its “High” phase.

    The presupposition for this take is that, before 2008, the national interests of the USA practically coincided with the historical task of capitalism: what was good for capitalism was good for the USA and vice versa. After 2008, that was not the case anymore, so the American people will have to fill the national identity vacuum left by the loss of capitalism – a vacuum that can only be filled with Christian fanaticism. Remember the Marxist maxim: a mode of production or civilization in decline must always generate its corresponding ideology of decline.

    This “Christian nationalism” is the exact same type of fascism that was exported to Brazil – and I mean literally, as all the Brazilian surviving evangelical churches of significance are of American origin (the so-called “non-denominational churches”).

  5. Only the identification of the percentage of whites among the general population is not important to a policy of violent exclusion for religious reasons, it is important to take into account the age distribution of so -called white Christians. If we look at the US census we see that young Latinos are almost in the same amount as white. In short, white Christians are an aged population.

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